THE VALUATION OF OIL AND NATURAL GAS AND THE BASIS FOR THE CALCULATION OF ECONOMIC RENT (ROYALTIES) FOR PRODUCTION FROM INDIAN RESERVES 1 I. INTRODUCTION The beneficial title to “lands reserved for Indians” in Canada has always been an anomaly under the common law or, more properly, an anomaly recognized by the common law. What the common law would label as the “surface rights” portion of this title has been the subject of extensive litigation over the decades. Whether the right to minerals is included in the beneficial, sui generis interest of aboriginal peoples within this title is a further complicating issue. Unfortunately the courts have rarely touched upon this latter issue. This paper intends to explore the extent to which the “Indian interest” includes the rights to minerals within those particular lands reserved for Indians that have been designated as “Indian reserves” pursuant to the Indian Act. 2 It will not touch upon the broader traditional or aboriginal land rights of aboriginal peoples. More specifically, the paper will explore this interest in the Western Canada Sedimentary Basin as it pertains to petroleum and natural gas. The Western Canada Sedimentary Basin, generally speaking, falls within those lands which are the subject of the so-called “numbered treaties”. 3 The paper will also focus on the era of high world oil prices in the 1970’s and 1980’s, a period when the majority of conventional oil production from Indian reserves was taken, and how the valuation of petroleum and natural gas during those years may impact on the valuation of petroleum and natural gas in the current era of once again soaring prices for these commodities. 1 This paper is largely based on research done by Ms. Laurie Strapp, Mr. Owen McGorman, Ms. Judy MacLachlan and Mr. Tibor Osvath on behalf of the Samson Cree Nation. The author also wishes to acknowledge the assistance of Ms. Ruth Johnson. 2 R.S.C. 1985, c. I-5. 3 That is, Treaties 1 through 11. 5.2 II. THE LEGAL BACKGROUND Morris stated in The Treaties of Canada 4 that the treaties with the “Indian tribes, of Manitoba, the North-West Territories and Kee-wa-tin” were all based on the models of that made at the Stone Fort in 1871 5 and the North-West Angle Treaty of 1873. 6 The Stone Fort and North-West Angle Treaties were, in turn, based “in many material features” on those made by W.B. Robinson with the Chippewas living on the shores of Lakes Huron and Superior [in 1850]. 7 Morris noted with respect to those earlier treaties that they were “forerunners of the future treaties and shaped their course”. 8 In discussing features common to all the treaties, Morris noted the following: The allotment of lands to the Indians, to be set aside as reserves for them for homes and agricultural purposes, and which cannot be sold or alienated without their consent , and then only for their benefit ; . 9 Morris noted, in discussing the treaties with the Indian tribes of Manitoba, the North- West Territories and Kee-wa-tin, that their provisions “must be carried out with the utmost good faith and the nicest exactness”. 10 The Robinson Superior Treaty stated as follows: . and should the said Chiefs and their respective tribes at any time desire to dispose of any mineral or other valuable productions upon the said reservations, the same will be at their request sold by order of the Superintendent-General of the Indian Department for the time being, for their sole use and benefit, and to the best advantage .11 4 The Hon. Alexander Morris P.C. The Treaties of Canada with the Indians of Manitoba and the North-West Territories including the Negotiations on which they were Based (1880) at 285 [ Morris ]. 5 That is, Treaty 1. 6 That is, Treaty 3. 7 Morris, supra note 4 at 285 [the Robinson Huron Treaty and the Robinson Superior Treaty ]. 8 Ibid. at 16. 9 Ibid . at 287 [emphasis added]. 10 Ibid . at 285. 11 Ibid . at 303 [emphasis added]. 5.3 Morris’ account of the negotiations leading to the Stone Fort and Manitoba Post 12 treaties includes the following assurances from Wemyss M. Simpson, Indian Commissioner, to the assembled Indian bands: First. Your Great Mother the Queen wishes to do justice to all her children alike . She will deal fairly with those of the setting sun, just as she would do with those of the rising sun. 13 . [Y]ou must understand that she can do for you no more than she has done for her red children in the East. If she were to do more for you that would be unjust for them. She will not do less for you because you are all her children alike, and she must treat you all alike .14 Morris’ account of the negotiations leading to the signing of the North-West Angle Treaty 15 includes the following representation: They asked if the mines would be theirs. I said if they were found on their reserves, it would be to their benefit but not otherwise. 16 In addition, the negotiations of the North-West Angle Treaty included the following exchange between Lieutenant Governor Morris (as he then was) and a chief: CHIEF - “Should we discover any metal that was of use, could we have the privilege of putting our own price on it?” GOVERNOR - “If any important minerals are discovered on any of their reserves the minerals will be sold for their benefit with their consent. .” 17 12 That is, Treaty 2. 13 Morris, supra note 4 at 28 [emphasis added]. 14 Ibid . at 29 [emphasis added]. There is no mention of the sale or lease of minerals in the written form of either Treaty 1 or 2. 15 That is, Treaty 3. 16 Morris, supra note 4 at 50 [emphasis added]. 5.4 The North-West Angle Treaty stated as follows: . and provided also that the aforesaid reserves of lands or any interest or right therein or appurtenant thereto, may be sold, leased or otherwise disposed of by the said Government for the use and benefit of the said Indians, with the consent of the Indians entitled thereto first had and obtained. 18 Morris’ account of the negotiations leading to the signing of the Qu’Appelle Treaty 19 contains the following statement: After long and animated discussions the Indians asked to be granted the same terms as were accorded to the Indians of Treaty Number Three, at the North-West Angle, hereinbefore mentioned. The Commissioners assented to their request and the treaty was signed accordingly. 20 In the course of the negotiations leading to the signing of the Qu’Appelle Treaty, Morris compared it to North-West Angle Treaty and said to the assembled Indians, who had asked for better terms: That would not be right and it is well that you should know that we have not power to do so; we can give you no more than we gave them . 21 Treaty 4 stated as follows: . and provided further that the aforesaid reserves of land, or any part thereof, or any interest or right therein, or appurtenant thereto, may be sold, leased or otherwise disposed of by the said Government for the use 17 Ibid . at 70 [emphasis added]. 18 Ibid . at 323 [emphasis added]. 19 That is, Treaty 4. 20 Morris, supra note 4 at 79. 21 Ibid . at 122 [emphasis added]. 5.5 and benefit of the said Indians, with the consent of the Indians entitled thereto first had and obtained; . 22 Treaty 5 stated as follows: . and also that the aforesaid reserves of land, or any interest therein, may be sold or otherwise disposed of by Her Majesty’s Government for the use and benefit of the said Indians entitled thereto, with their consent first had and obtained; . 23 In 1876, Treaty No. 6 was entered into between Her Majesty the Queen of Great Britain and Ireland on the one part and the Plain and Wood Cree and other tribes of Indians, inhabiting the area contemplated by the Treaty, on the other part. Treaty No. 6 provided in part as follows: And Her Majesty the Queen hereby agrees and undertakes to lay aside reserves for farming lands, due respect being had to lands at present cultivated by the said Indians, and other reserves for the benefit of the said Indians, to be administered and dealt with for them by Her Majesty’s Government of the Dominion of Canada. [T]he aforesaid reserves of lands, or any interest therein, may be sold or otherwise disposed of by Her Majesty’s government for the use and benefit of the said Indians entitled thereto, with their consent first had and obtained. It is further agreed between Her Majesty and her said Indians, that such sections of the reserves above indicated as may at any time be required for public works or buildings of what nature soever, may be appropriated for 22 Ibid . at 332 [emphasis added]. 5.6 that purpose by Her Majesty’s Government of the Dominion of Canada, due compensation being made for the value of any improvements thereon; 24 On August 19, 1876, a few days prior to the signing of Treaty No. 6, which took place August 23 and August 28, Lieutenant-Governor Alexander Morris addressed the assembled Plain and Wood Cree and other groups of Indians. His address included the following remark with respect to the proposed Treaty: You think only for yourselves, we have to think of the Indians all over the country, we cannot treat one better than another , it would not be just, we will therefore do this, and what I tell you now is the last.